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5.8. Responsibility Center Reports

A company's accounting system should support preparation of an accounting report for each responsibility center. This information is essential to monitor, control, and direct each business unit. The exact form and detail of a performance report depends on the particular organization and the nature of the responsibility center. Oftentimes, the reports will provide a comparison between budgeted and actual data, with the difference being reported as a variance from budget. These performance reports should be consistent with the organizational structure of the firm. At successively higher levels within an organization, the reports tend to include less transaction specific detail and more combinations of business units. For Out to Lunch Hamburgers, each store will likely have a customized performance report:

Responsibility Center Reports

The next step in the corporate ladder is the CEO. This individual would most likely be evaluated on the overall financial statement outcomes. Although the CEO would have access to any and all of the reports from within the organization, they would mostly focus on the reports emanating from each vice president's unit.

5.9. The Power of a Data Base System

The static reports illustrated above are quite useful, but do suffer from an important limitation.

5.10 Management by Expansion

"Underperforming stores are identified, problems are studied, and corrective measures are taken. Very little time is spent on locations that are meeting or exceeding corporate profit goals. " These sentences are taken directly from the preceding discussion about how the senior manager of store operations uses the performance reports. This is an excellent illustration of what is meant by the concept of management by exception. The objective of management by exception is to focus attention on areas where corrective measures appear necessary. Performance evaluation tools that do not satisfy this objective are of little value. Importantly, not every exception requires a remedy. One characteristic of a strong manager is the ability to study problems, and differentiate between those requiring a solution and those that simply happened because of bad luck.

Management by Expansion

The next step in the corporate ladder is the CEO. This individual would most likely be evaluated on the overall financial statement outcomes. Although the CEO would have access to any and all of the reports from within the organization, they would mostly focus on the reports emanating from each vice president's unit.

5.11. The Power of a Data Base System

The static reports illustrated above are quite useful, but do suffer from an important limitation. Specifically, what you see is what you get. It is very difficult to "mine data" pertinent to a specific inquiry. For example, if the VP of Operations wanted to know the overall corporate sales mix proportions (hamburgers, fries, drinks) a specific request would be initiated to the store and catering managers. They would gather the individual reports from each location and develop a report to channel back up to the VP. The VP of Operations would then need to combine the two reports before having an answer to the inquiry. This is very inefficient and may have the undesirable outcome of forcing management to make decisions based on incomplete information. Increasingly, companies are developing customized electronic data base systems that capture data and store it in such a way as to enable accurate and real time retrieval of information relevant to an almost endless number of potential questions.

 
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